SECTION 12. EFFECTIVE DATE

.01 In general. Except as provided in section 12.02 of this revenue procedure, this revenue procedure is effective for:

(1) examiner’s reports issued on or after [insert date that is 90 days from the

A - t * {[1+(r/365)] ^n-1 } where A = the § 481(a) adjustment

t = highest marginal tax rate

(2) Effect. The taxpayer’s basis in the property as of the end of 1996 is increased by $4,000,000 (representing the disallowance of the $2,000,000 of deductions in each of 1995 and 1996). The taxpayer’s current method of accounting for the costs is not changed. Thus, the taxpayer is required to continue to deduct the costs in 1997 and all subsequent taxable years, unless the taxpayer obtains the consent of the Commissioner to change the method or the Service changes the taxpayer from the method on subsequent examination. If the Service changes the taxpayer’s method in 1997, the Service will compute a § 481(a) adjustment of $1,000,000 (representing the $1,000,000 of the costs deducted in 1994). The Service will also disallow the deduction of $5,000,000 in 1997. The taxpayer’s basis in the property as of the end of 1997 will be increased by an additional $6,000,000 (representing the $1,000,000 § 481(a) adjustment and the disallowance of the $5,000,000 deduction in 1997). The method change (once final) is effective for 1997. Thus, the taxpayer is required to capitalize the costs in 1997 and all subsequent taxable years, unless the taxpayer obtains the consent of the Commissioner to change the method or the Service changes the taxpayer from the method on

applicable to the taxpayer

June 1, 1998 22 1998–22 I.R.B.

date this revenue procedure is published in the Internal Revenue Bulletin]; and

(2) Forms 870AD and closing agreements executed on or after [insert date that is 90 days from the date this revenue procedure is published in the Internal Revenue Bulletin] (regardless of when the underlying examiner’s report was issued).

.02 Transition rule. The Service and the taxpayer may agree to apply this revenue procedure to closing agreements executed on or after [insert the date this revenue procedure is published in the Internal Revenue Bulletin].

DRAFTING INFORMATION

The principal authors of this notice and proposed revenue procedure are Robert

A. Testoff and Dwight N. Mersereau of the Office of Assistant Chief Counsel (Income Tax and Accounting). For further information regarding this notice and proposed revenue procedure, contact Mr. Testoff on (202) 622-4990 or Mr. Mersereau on (202) 622-4970 (not tollfree calls).

Weighted Average Interest Rate Update

Notice 98–32

Notice 88–73 provides guidelines for determining the weighted average interest rate and the resulting permissible range of

interest rates used to calculate current liability for the purpose of the full funding limitation of § 412(c)(7) of the Internal Revenue Code as amended by the Omnibus Budget Reconciliation Act of 1987 and as further amended by the Uruguay Round Agreements Act, Pub. L. 103-465 (GATT).

The average yield on the 30-year Treasury Constant Maturities for April 1998 is 5.92 percent. The following rates were determined for the plan years beginning in the month shown below.

90% to 106% 90% to 110% Weighted Permissible Permissible Month Year Average Range Range

May 1998 6.63 5.97 to 7.03 5.97 to 7.29

Drafting Information

The principal author of this notice is Donna Prestia of the Employee Plans Division. For further information regarding

this notice, call (202) 622-6076 between 2:30 and 3:30 p.m. Eastern time (not a toll-free number). Ms. Prestia’s number is (202) 622-7473 (also not a toll-free number).

1998–22 I.R.B. 23 June 1, 1998